Average house price down 12% … and more falls to come

Interesting to look at the price table in the latest Hometrack report.

According to their figures, the average house price in November 2007, at the height of the market, was £175,700. But in November 2010 it was £155,000 – a 12% drop.

They predict further price falls next year, but argue that the market will dip by just 2% because tightening supply will put a floor under prices.

Richard Donnell, Director of Research at Hometrack, explains:

The rising supply of homes for sale over the last six months has played its part in pushing price growth into negative territory. While it is early days, the supply/demand balance looks set to change in the coming months as we see the number of homes for sale begin to fall.

After 9 months of consecutive increases in supply, the November survey shows the first monthly decline in the supply of homes for sale – down -0.4%.

This decline is intrinsically linked to weakening demand as the majority of buyers are also would-be sellers. Looking ahead, the real impetus to reduced supply is set to come from agents.

Over the coming months, estate agents will be turning their attention to the supply of homes on their books anxious to adjust stock levels to realistic prices more closely aligned to demand.

The reality is that in the months ahead vendors will either need to reduce prices or withdraw property from the market.

This is a process that will run over the next 3-6 months and will result in a gradual tightening of supply, a trend that will act as something of a support to prices over the course of 2011.

In the near term, we expect demand to remain weak and this will continue to put downward pressure on prices in the coming months.Over the course of 2011 we expect average house prices to decline by -2%.